Creating a financial plan is an important step towards achieving financial stability and future goals. Whether you’re planning for retirement, savings for a large purchase, or putting money aside for an emergency fund, a well-thought-out plan can help you guide you to your specific goal. Here’s where to start:
Step 1: Decide your financial goals and split them up into three categories.
- Short-Term Goals: Goals you are aiming to achieve within a year such as a small emergency fund or paying off a small debt.
- Medium-Term Goals: Goals you are aiming to achieve over the span of five years such as a down payment on a house.
- Long-Term Goals: Goals that take more than five years to achieve such as a retirement fund.
Step 2: Evaluate your current finances to see where you currently stand considering the following three factors.
- Income: Calculate your total monthly income and your spouse’s income if applicable.
- Expenses: Track your monthly expenses by creating a spreadsheet to see your spending habits and what your monthly bills are.
- Net Worth: Make a list of your assets i.e. properties and investments and your liabilities i.e. loans to determine your net worth
Step 3: Create a budget that includes your monthly expenses, both essential and optional, as well as any savings or investments.
- Essential Expenses: Included in these expenses are any monthly payments you may have such as a car loan or mortgage as well as groceries, utilities and insurance.
- Voluntary Expenses: These include any expenses you may have that are for pleasure such as dining out or going to the movies.
- Savings and Investments: Try to allocate some money in your budget to any savings or investment accounts you may have.
Step 4: Manage and reduce debt.
- Prioritize High-Interest Debt: When determining which debt to pay off first pay attention to the interest rates. Often credit cards will have higher interest rates and are the kinds of debts you want to focus on paying off first.
- Debt Consolidation: If you have several credit cards or debt at different companies, consider consolidating all of it into one loan with one interest rate.
Step 5: Invest in your future.
- Retirement Accounts: Be sure to open and contribute to a retirement account such as a 401k or IRA to prepare for retirement.
- Diversify Investments: Open different types of accounts at different institutions to have a diverse and profitable investment portfolio.
- Professional Advice: Seek out professional advice from someone who is licensed and has experience managing assets.
Step 6: Regularly review and update your financial plan.
- Monitor Your Progress: Regularly review the plan you have made and track your progress towards your set goals.
- Make Adjustments: With life constantly changing it’s important to make adjustments to your current financial plan as needed.
Step 7: Stay committed and focused.
- Stick with it: While saving towards a goal and sticking to a budget can be tough it is important to stay diligent and follow the plan you have put in place.
- Celebrate your achievements: Be sure to reward yourself when you have reached one of your financial milestones. It is hard work to save and stick to a budget, so it is important to recognize yourself and your achievements when you reach them!
Creating a financial plan is a crucial step to take in your lifetime. By setting clear goals, assessing your current financial situation, and making smart decisions, you can build a solid financial foundation. Remember that the key to a successful plan is to regularly review your plan and adjust to stay on track and within budget. Here at Auburn Savings, we are dedicated to helping you achieve a stable financial future. Be sure to stop by one of our branches and meet with a Customer Service Representative to learn how we can help with your future financial plan.